Common Pitfalls Of Legacy Planning
Legacy planning has always been one area that people have overlooked or paid insufficient attention to. Thankfully, people nowadays are beginning to increasingly understand the importance of legacy planning – ensuring that their intentions are given effect, that the whole probate process is smooth and the administration does not encounter any untoward hiccups, and that their surviving family members do not end up in court fighting over the assets.
Yet the problem nowadays is not so much that people overlook their legacy planning, but that they do their legacy planning without being aware of all the possible legal pitfalls that might affect their plans.
Updating your Will
One of the common pitfall is arguably the failure to update one’s will. With greater awareness of the importance of legacy planning, people are beginning to make their wills at a younger and younger age, while conversely, nowadays people are marrying and buying properties later on in life.
When you acquire new properties, your existing will might not cover this, meaning you would need to update your will to add in details regarding your new properties. While some wills do have a “catch-all” clause which provides for the distribution of all assets not expressly mentioned in the will, it is important to read through your will carefully to see if there is actually such a clause, and if so, whether that clause suits your needs.
Another issue is that when you marry, and later on have children, you may wish to alter the manner in which your assets get distributed, to provide for your spouse and children. In fact, when you marry, any will that you made while single is automatically revoked. Thus, it is important not to forget this important step of updating your will whenever you reach these milestones in life.
Additional Buyer’s Stamp Duty (ABSD)
The current ABSD rates are high – the most recent raise was in December 2021. Thus, ABSD related issues are an important consideration that you need to take into account when you do your legacy planning.
The first issue to note is that if your children inherit even a small share of any property, they will not be able to buy their own HDB, and if they want to buy private property, they will be subject to ABSD.
There are also cases of people who, instead of using a will, prefer to register their children as joint tenants or tenants-in-common in respect of their property. While this is one way to “distribute” the property, the same issue arises – their children will be unable to buy HDBs and if they want to purchase private property, they will have to pay the applicable ABSD.
For Singapore citizens buying their second residential property, they are subjected to an ABSD rate of 17%, and for the third property onwards, the ABSD will be 25%. For permanent residents, it is worse – they will pay ABSD of 5% on their first property, 25% on their second and 30% on their third property onwards.
Many couples like to register themselves as joint tenants of their home. Being joint tenants means that when one spouse passes, the other spouse automatically inherits the whole property. This is known as the law of survivorship. Thus, if you have a will providing that the home is to be inherited by your children, upon the demise of one of the joint tenants, the will would be ineffective in respect of properties under joint tenancy.
Thus, if you currently jointly own your property with your spouse but want to pass on your share of the house to your children, you may wish to sever the joint tenancy. This will make you and your spouse tenants-in-common, with each having a 50% share of the property. You would then be able to deal with your share of the property however you want.
Intestate Succession Act
The Intestate Succession Act (“the Act”) provides for a “default” mode of distributing one’s assets in the absence of a valid will. If you are thinking of simply relying on the Act to govern the distribution of your assets, you might want to think twice.
Under Rule 4 of the Act, if one passes without a valid will, leaving behind a spouse and no children, half of the assets will actually go to his or her parents. If this is not your intention, you will need a will. This concern is particularly relevant nowadays because many couples opt to have their home registered solely under the name of one spouse so that the other spouse can buy another property down the road without being subjected to ABSD. If you do not want your matrimonial home to end up being half-owned by your parents, you need a will.
Another issue is that under Rule 2 read with Rule 3 of the Act, if one passes without a valid will, leaving behind a spouse and children, half the assets go to the surviving spouse and the other half goes to the children. This can be a problem if the children are young, and particularly if the assets have liabilities attached to them. For example, your house might still be subject to a mortgage. In such cases, it might be better to make sure your spouse inherits everything so that administration can be as smooth as possible. You will need a will for this.
Another issue with Rule 3 of the Act is that all the children of an intestate would get an equal share. While having your children all get an equal share might seem like a good and fair distribution at first glance, this can potentially present problems.
Nowadays, due to high costs of living, not all your children might be able to move out and get properties of their own. Some of your children might move out while others might live with you in your house. The problem with all your children getting an equal share in your house is that the ones who have moved out would often wish to sell it while the ones still living in your house would want to keep it. If the latter cannot buy over the shares of the former, then this becomes a problem. It is not uncommon for such family squabbles over conflicting interests to go all the way to court. One possible solution is to leave your house in its entirety to those of your children who are still living there, and for your other children who have already moved out, you can leave them other assets like cash, stocks, etc. For this, you will need a will.
How SMTP Can Assist
People are becoming increasingly aware of the need for legacy planning, and at some point, they will often address their minds to this issue and come up with a plan. These myriad plans could involve having a will, registering family members as tenants-in-common or joint tenants in respect of property, or even relying on the “default” pro-visions of the Intestate Succession Act.
However, regardless of what your plan is, there are potential pitfalls that could lead to hardship and headaches for your beneficiaries down the road. It is important to identify these possible issues and address them early on.
At SMTP, our FLP team provides a suite of services which includes advising and assisting on estate planning matters. Tapping on our wealth of experience and resources, we can guide you through the entire process of estate planning, be it advising on how to structure a trust, drafting a will, or pre-paring LPAs.
We have a Wealth & Legacy Screening Programme, where we will take the client through a screening process that touches on the family and the family dynamics, the asset class and its situs before we give our recommendations on the possible structures for our client’s considerations.
SMTP’s core philosophy is to pro-vide bespoke legal advice based on our private clients’ specific needs and requirements, as cases always differ on their fine details. Our team of dedicated staff are ever eager and prepared to assist interested parties.
We also believe in close engage-ment with our clients, paying close attention to their individual facts and
circumstances, and tailoring our advice and courses of action to cater to their specific needs and requirements. We understand that legacy planning can be tricky, particularly for someone who is not legally-trained. Be that as it may, our team of professionals with their wealth of experience can assist to guide you through the relevant processes.